SECURITIES AND EXCHANGE COMMISSION
Washington, DC
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17412
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Secured Income L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 06-1185846
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State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
599 West Putnam Avenue
Greenwich, Connecticut 06830
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (203) 869-0900
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
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SECURED INCOME L.P. AND SUBSIDIARIES
Part I - Financial Information
Table of Contents Page
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Item 1 Financial Statements 3
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Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
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Item 3 Quantitative and Qualitative Disclosure about Market Risk 8
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Item 4 Controls and Procedures 9
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2
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
2003 December 31,
(Unaudited) 2002
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ASSETS
Property and equipment (net of accumulated
depreciation of $22,857,907 and $22,109,373) $ 21,891,600 $ 22,640,134
Cash and cash equivalents 4,394,267 4,269,304
Restricted assets and funded reserves 1,411,097 587,843
Tenant security deposits 585,487 573,903
Accounts receivable 46,931 44,846
Prepaid expenses 118,130 754,920
Intangible assets, net of accumulated amortization 2,056,804 2,113,395
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$ 30,504,316 $ 30,984,345
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LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 41,102,913 $ 41,365,120
Accounts payable and accrued expenses 202,868 331,678
Tenant security deposits payable 579,231 569,931
Due to general partners and affiliates 151,969 172,305
Deferred revenue 92,644 92,644
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42,129,625 42,531,678
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Partners' deficit
Limited partners (10,031,307) (10,206,181)
General partners (1,594,002) (1,341,152)
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(11,625,309) (11,547,333)
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$ 30,504,316 $ 30,984,345
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See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
(Unaudited)
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, 2003 June 30, 2003 June 30, 2002 June 30, 2002
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REVENUE
Rental $ 2,315,879 $ 4,468,439 $ 2,066,229 $ 4,143,811
Interest 9,685 20,369 15,871 45,606
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TOTAL REVENUE 2,325,564 4,488,808 2,082,100 4,189,417
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EXPENSES
Administrative and management 172,719 392,218 209,016 407,047
Operating and maintenance 363,898 672,874 375,344 676,876
Taxes and insurance 384,483 772,139 341,204 691,615
Financial 422,264 874,362 441,633 901,643
Depreciation and amortization 402,561 805,125 405,883 811,766
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TOTAL EXPENSES 1,745,925 3,516,718 1,773,080 3,488,947
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NET EARNINGS $ 579,639 $ 972,090 $ 309,020 $ 700,470
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NET EARNINGS (LOSS) ATTRIBUTABLE TO
Limited partners $ 573,843 $ 962,369 $ 364,698 $ 364,698
General partners 5,796 9,721 (55,678) 335,772
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$ 579,639 $ 972,090 $ 309,020 $ 700,470
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NET EARNINGSALLOCATED
PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ .59 $ .98 $ .37 $ .37
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See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Unaudited)
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 972,090 $ 700,470
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 805,125 811,766
Increase in restricted assets and funded reserves (823,254) (665,270)
Decrease (increase) in tenant security deposits (11,584) 8,340
Increase in accounts receivable (2,085) (3,329)
Decrease in prepaid expenses 636,790 592,441
Increase (decrease) in accounts payable and
accrued expenses (128,810) 69,934
Increase (decrease) in tenant security deposits
payable 9,300 (9,801)
Decrease in due to general partners and affiliates (20,336) (6,016)
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Net cash provided by operating activities 1,437,236 1,498,535
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CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (1,050,066) (1,649,993)
Principal payments on mortgages (262,207) (215,899)
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Net cash used in financing activities (1,312,273) (1,865,892)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 124,963 (367,357)
Cash and cash equivalents at beginning of period 4,269,304 4,831,075
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,394,267 $ 4,463,718
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SUPPLEMENTAL INFORMATION
Financial expenses paid $ 898,095 $ 843,237
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See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. They do not
include all information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. The results of operations are impacted significantly by the
results of operations of the Carrollton and Columbia Partnerships, which is
provided on an unaudited basis during interim periods. Accordingly, the
accompanying consolidated financial statements are dependent on such
unaudited information. In the opinion of the General Partners, the
consolidated financial statements include all adjustments necessary to
reflect fairly the results of the interim periods presented. All adjustments
are of a normal recurring nature. No significant events have occurred
subsequent to June 30, 2003 and no material contingencies exist which would
require additional disclosure in the report under Regulation S-X, Rule 10-01
paragraph A-5.
The results of operations for the six months ended June 30, 2003 are not
necessarily indicative of the results to be expected for the entire year.
2. Additional information, including the audited December 31, 2002 Consolidated
Financial Statements and the Summary of Significant Accounting Policies, is
included in the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002 on file with the Securities and Exchange Commission.
6
SECURED INCOME L.P. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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Liquidity and Capital Resources
The Partnership's primary sources of funds are rents generated by the Operating
Partnerships and interest derived from investments and deposits, certain of
which are restricted in accordance with the terms of the mortgages of the
Operating Partnerships. The Partnership's investments are highly illiquid.
The Partnership is not expected to have access to additional sources of
financing. Accordingly, if unforeseen contingencies arise that cause an
Operating Partnership to require capital in addition to that contributed by the
Partnership and any equity of the Operating General Partners, potential sources
from which such capital needs will be able to be satisfied (other than reserves)
would be additional equity contributions of the Operating General Partners or
other equity reserves, if any, which could adversely affect the distribution
from the Operating Partnerships to the Partnership of operating cash flow and
any sale or refinancing proceeds.
Cash and cash equivalents increased by approximately $125,000 during the six
months ended June 30, 2003 as the result of cash generated from operations,
partially offset by distributions to limited partners and the Columbia
Partnership's distribution to its general partners of 2002 cash flows in excess
of the 8% preferred return under the terms of the Columbia Partnership's
partnership agreement. Mortgages payable decreased due to principal amortization
of approximately $262,000. Property and equipment decreased by approximately
$748,000 due to depreciation, while intangible assets decreased by approximately
$29,000 due to amortization. Property and equipment and intangible assets are
expected to decrease annually as the cost of these assets is allocated to future
periods over their remaining estimated service lives. Prepaid expenses decreased
and restricted assets and funded reserves increased in the ordinary course of
operations.
The Partnership made a distribution on or about May 15, 2003 of approximately
$.40 per Unit to Unit holders as of March 31, 2003 and anticipates making
another distribution on or about August 15, 2003 of approximately $.40 per Unit
to Unit holders of record as of June 30, 2003. The Partnership made quarterly
distributions to the limited partners in May, August and November 2002 and in
March 2003 totaling $1,574,990, resulting primarily from operating cash flow
generated by the Operating Partnerships. Such distributions represent an
annualized return to the limited partners of approximately 8% for the year ended
December 31, 2002. The Partnership intends to make quarterly distributions on an
ongoing basis, subject to the operating results of the Operating Partnerships;
the Operating Partnerships' results from operations is highly contingent upon
the interest rates of the Columbia Partnership's low-floater mortgage and the
strength of their respective rental markets. There can be no assurance that the
Operating Partnerships will continue to generate cash flow sufficient to make
quarterly distributions or that future distributions will be in any specific
amounts. The events of September 11, 2001 have increased the risk that the
operations of the Properties may be adversely impacted as a result of the effect
of these events on the economy in general and because the Properties are located
in New York City and near Washington, D.C.
Results of Operations
Six Months Ended June 30, 2003
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During the six months ended June 30, 2003, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $2,097,000 and approximately $602,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $182,000 and
approximately $80,000, respectively. After considering the respective mandatory
mortgage principal payments and required deposits to mortgage escrows, among
other things, the Complexes generated combined cash flow of approximately
$1,529,000 during the six months ended June 30, 2003. There can be no assurance
that the level of cash flow generated by the Complexes during the six months
ended June 30, 2003 will continue in future periods.
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SECURED INCOME L.P. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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Results of operations for the six months ended June 30, 2003 reflect improvement
as compared to the six months ended June 30, 2002. The increase in rental
revenue for the six months ended June 30, 2003 was primarily attributable to the
receipt of approximately $221,000 in connection with one of the Columbia
Partnership's commercial tenants breaking its lease in the second quarter of
2003. The termination fee represents approximately eighteen months of rent for
such space. Under the terms of the Columbia Partnership's mortgages, the fee
will be escrowed and will not be released until such time as the space is leased
to another tenant. Any prospective tenant must be approved by the lender; the
space has not been rented as of August 2003. The weighted average interest rate
on the Columbia Partnership's first mortgage was approximately 1.08% for the
first six months of 2003 as compared to approximately 1.26% for the first six
months of 2002.
As of June 30, 2003, the occupancy of Fieldpointe Apartments (Carrollton) was
approximately 94% and the occupancy of The Westmont (Columbia) was approximately
99% as to residential units and 88% as to commercial space (see discussion
above). The future operating results of the Complexes will be extremely
dependent on market conditions and therefore may be subject to significant
volatility.
Six Months Ended June 30, 2002
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During the six months ended June 30, 2002, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $1,816,000 and approximately $632,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $140,000 and
approximately $76,000, respectively. After considering the respective mandatory
mortgage principal payments and required deposits to mortgage escrows, among
other things, the Complexes generated combined cash flow of approximately
$1,261,000 during the six months ended June 30, 2002. As of June 30, 2002, the
occupancy of Fieldpointe Apartments (Carrollton) was approximately 96% and the
occupancy of The Westmont (Columbia) was approximately 94% as to residential
units and 100% as to commercial space.
Critical Accounting Policies and Estimates
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The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which requires
the Partnership to make certain estimates and assumptions. The following section
is a summary of certain aspects of those accounting policies that may require
subjective or complex judgments and are most important to the portrayal of the
Partnership's financial condition and results of operations. The Partnership
believes that there is a low probability that the use of different estimates or
assumptions in making these judgments would result in materially different
amounts being reported in the consolidated financial statements.
The Partnership records its real estate assets at cost less accumulated
depreciation and, if there are indications that impairment exists, adjusts the
carrying value of those assets in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."
Item 3. Quantitative and Qualitative Disclosure about Market Risk
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The Partnership has market risk sensitivity with regard to financial instruments
concerning potential interest rate fluctuations in connection with the low
floater rates associated with the Columbia Partnership's first mortgage.
Accordingly, a fluctuation in the low-floater interest rates of .25% would have
a $60,500 annualized impact on the Partnership's results of operations.
8
SECURED INCOME L.P. AND SUBSIDIARIES
Item 4. Controls and Procedures
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Evaluation of Disclosure Controls and Procedures
a. Within the 90 days prior to the date of this report, the Chief Executive
Officer and Chief Financial Officer of a General Partner of the Partnership
carried out an evaluation of the effectiveness of the Partnership's
"disclosure controls and procedures" as defined in the Securities Exchange
Act of 1934 Rules 13a-14(c) and 15(d)-14(c). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that as of
the date of the evaluation, the Partnership's disclosure controls and
procedures were adequate and effective in timely alerting them to material
information relating to the Partnership required to be included in the
Partnership's periodic SEC filings.
Changes in Internal Controls
b. There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect the Partnership's internal
controls subsequent to the date of that evaluation.
9
SECURED INCOME L.P. AND SUBSIDIARIES
Part II - Other Information
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Item 1 Legal Proceedings
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Registrant is not aware of any material legal proceedings.
Item 2 Changes in Securities
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None
Item 3 Defaults upon Senior Securities
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None
Item 4 Submission of Matters to a Vote of Security Holders
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None
Item 5 Other Information
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None
Item 6 Exhibits and Reports on Form 8-K
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a. Exhibits
Exhibit 31.1 Rule 13a-14/15d-14(a) Certification of Chief Executive
Officer
Exhibit 31.2 Rule 13a-14/15d-14(a) Certification of Chief Financial
Officer
Exhibit 32.1 Section 1350 Certification of Chief Executive Officer
Exhibit 32.2 Section 1350 Certification of Chief Financial Officer
b. Reports on Form 8-K
None
10
SIGNATURES
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized on the 14th day of August 2003.
SECURED INCOME L.P.
By: Wilder Richman Resources Corporation,
General Partner
By: /s/ Richard Paul Richman
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Richard Paul Richman - Chief Executive Officer
By: /s/ Neal Ludeke
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Neal Ludeke - Chief Financial Officer
By: WRC-87A Corporation, General Partner
By: /s/ Richard Paul Richman
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Richard Paul Richman - Executive Vice
President
By: /s/ Neal Ludeke
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Neal Ludeke - Chief Financial Officer
11